Filing Summary
Issuer and period: The supplied filing is Golden Matrix Group, Inc.’s Form 10-K for the fiscal year ended July 31, 2017, filed November 6, 2017. This does not match the request metadata naming Meridian Holdings Inc. or “2017 Q4”; confirm the filing belongs to the intended issuer and period.
Business Context and Financial Results
Golden Matrix shifted from mineral exploration to social online gaming software and technology in 2016. It reports a focus on the Asian market and acquired gaming intellectual property and know-how. It had no mining assets at year-end. Fiscal 2017 revenue came entirely from a related party, Globaltech Software Services LLC.
| Metric | FY ended July 31, 2017 | FY ended July 31, 2016 |
|---|---|---|
| Revenue | $120,000 | $20,000 |
| Gross profit / margin | $70,000 / 58.3% | $20,000 / 100% |
| Operating expenses | $320,436 | $5,216,357 |
| Operating loss | ($250,436) | ($5,196,357) |
| Net income (loss) | $1,801,080 | ($10,006,245) |
| Cash from (used in) operations | ($15,129) | $1,296 |
FY2017 net income included a $1,611,153 unrealized gain on derivative liabilities and an $854,018 gain on extinguishment of debt, while the company incurred $413,655 in interest expense. The filing therefore reports an operating loss despite positive net income; the reported profit was substantially affected by financing-related and noncash items.
Cash was $25,167 at July 31, 2017, versus $2,296 a year earlier. Current assets were $87,667 and current liabilities were $1,623,814, producing a working-capital deficit of $1,536,147. The balance sheet reports $933,152 in convertible notes payable, net of discounts, including related-party notes; it also reports $147,408 accrued interest and $384,984 accounts payable to related parties. Shareholders’ deficit was $1,536,147. The filing does not provide a clear standalone debt-total measure beyond its liability line items.
Material Changes and Outlook
- Revenue rose to $120,000 from $20,000 as the company began generating revenue from social gaming technology and usage rights. Cost of goods sold increased to $50,000 from zero.
- Operating expenses fell sharply, principally because FY2016 included $4,674,712 of amortization and impairment charges. Interest expense also declined from $4,551,795 to $413,655, while debt-extinguishment and derivative fair-value items materially affected both periods’ results.
- The company issued 144,896,078 shares during FY2017 in conversions of promissory notes and related transactions, according to the equity note. Subsequent to year-end, it issued 228,133,043 shares for conversions of $49,360 principal, $9,466 interest, and $1,600 stock payable. Outstanding shares were reported as 369,230,026 on October 19, 2017. The filing describes substantial dilution from convertible debt.
- Management anticipated operating losses in the foreseeable future while completing gaming-site development and investing in player acquisition. It expected to seek equity financing, shareholder or third-party loans, and longer-term revenue from its gaming business, but gave no quantified revenue or earnings guidance and no assurance financing would be available.
- The auditor and management cited substantial doubt about the company’s ability to continue as a going concern. Management warned that failure to obtain financing could require cost reductions, abandonment of the business plan, or discontinuation of operations.
Risks, Governance, and Unusual Items
- Revenue and the $62,500 reported accounts receivable were tied to Globaltech, a company in which the CEO had an interest. The CEO also wholly owned Articulate Pty Ltd, which provided services; the company reported $249,984 payable to Articulate at year-end.
- Management concluded disclosure controls and internal control over financial reporting were ineffective and identified material weaknesses involving independent oversight, audit-committee oversight, accounting staffing and segregation of duties, and written accounting procedures. Remediation depended partly on obtaining additional funding. The auditor did not attest to internal-control effectiveness.
- The filing identifies online-gaming regulation, competition, and access to financing as risks. It reports no material pending legal proceedings and no off-balance-sheet arrangements.
- Series B preferred stock carried voting rights equal to four times the votes of all outstanding common and other voting preferred stock. The CEO was reported as beneficially owning 25.63% of common shares at July 31, 2017; the preferred voting rights are a separate control consideration.
Important Facts to Verify
- Confirm the issuer and period: the filing names Golden Matrix Group, Inc., not Meridian Holdings Inc., and covers the year ended July 31, 2017.
- Verify the nature and collectability of related-party revenue and receivables, and the terms and approval of transactions with Globaltech, Articulate, and Luxor Capital.
- Review the composition, maturity, default status, conversion terms, and dilution potential of convertible notes and derivative liabilities.
- Assess near-term funding needs, the going-concern uncertainty, and progress on internal-control remediation.
- Reconcile share counts and subsequent issuances: the filing reports 141,096,983 shares at July 31, 2017 and 369,230,026 outstanding as of October 19, 2017, with substantial post-year-end conversions.